The action comes after state auditors said last week they had found a third instance in which the city of Bell collected taxes illegally, bringing to $5.6 million the amount owed to taxpayers and raising questions about how the struggling town will balance its books. In all, auditors' findings of tax and assessment overcharges amount to $5.6 million, or more than one-third of the city's $13.5-million general fund.

Also on Wednesday, Atty. Gen. Jerry Brown announced a civil lawsuit against eight Bell officials and council members, accusing them of fraud and misuse of public funds.

Fitch said it was concerned about how the fallout from Bell scandal over high salaries would affect the city's finances.

"Weak management is evidenced by extraordinarily high salaries given to some former city officials, which are the subject of a recently filed lawsuit by California's attorney general, an illegal property tax rate increase and related rebate, and the debt exposure referenced above. The lawsuit and an ongoing criminal investigation could pressure what Fitch believes are already weakened city finances," the rating agency said.